ASIC has updated Information Sheet 230 Exchange traded products: Admission guidelines (INFO 230). INFO 230 provides additional guidance to firms, including licensed Australian exchanges, product issuers and market making execution agents, on better practices for internal market making in non-transparent, actively managed funds that are traded on exchange markets.

The update outlines measures firms should take to manage market integrity risks associated with internal market making. Firms should:

• only use a reference price or other information that is publicly available as the input for market making quotes;
• establish information barriers so that bids and offers are not submitted to the market by persons or systems with knowledge of the current portfolio holdings;
• have adequate arrangements for identifying and responding to instances of substantial information asymmetry in the market; and
• have appropriate compliance and supervision arrangements to support these measures.

The update also provides guidance on improving internal marking making practices. This includes:

• the indicative net asset value (iNAV) being as accurate and frequently disseminated as practicably possible;
• full portfolio holdings disclosure being delayed only to the extent necessary to protect the fund’s intellectual property; and
• internal market making arrangements supporting incoming and exiting investors to transact at fair and orderly prices.

Peripheral updates have also been made to reflect recent changes in the market.

This update follows ASIC’s review of internal market making (refer to 19-348MR) which took place over the second half of 2019.